Australian dollar denominated bond issuance has almost doubled this year, compared with issuance over the same period last year. All of the increase is government borrowing.

Fixed income broker FIIG Securities reported that A$190 billion of AUD bonds have been issued in the seven months to the end of July (excluding bills and securitised transactions). This compares with $110 billion in the seven months to the end of July 2019.

All of the increase was made up of issuance by governments. Commonwealth and state governments issued $43.5 billion of bonds in the seven-month period last year, compared with $93.2 billion issued by the Australian government alone so far this year.

Non-financial corporate bond issuance is flat year on year and financial sector issuance is down.

Fixed income researcher BondAdviser reported that all major bond and credit indexes moved higher during July. Bloomberg’s AusBond Credit Index rose 91 basis points over the month and finished the month 89 basis points higher than its pre-COVID all-time high in early March.

The AusBond Gov Index rose 28 bps in July, despite the AOFM’s big Australian government bond issuance program.

BondAdviser said the likely impact of the Reserve Bank’s term funding facility on the credit market is that there will be far less refinancing of senior paper. Senior spreads will be compressed as a result.

In its latest investor update, Perpetual Credit Income Trust said credit spreads continue to recover from the acute widening observed in late February and March. However, the tightening was more subdued in June, compared with previous two months.

“The outperformance of financial corporate spreads was the notable feature of the June quarter rally in credit,” Perpetual said.

“Secondary market trading activity has been subdued and issuance only picked up slowly.”